"We have discussed the NVDR issue with the Commerce Ministry [ahead of the draft being approved by the Cabinet]," she said.

NVDRs, designed to solve problems for Thai-listed firms arising from foreign-ownership limits, are issued by bourse subsidiary Thai NVDRs to foreign investors. The holders are entitled to receive dividends and rights issues but cannot vote on any subject, with the exception of matters involving delisting.

The draft amendments to the Foreign Business Act stipulate that foreign investors holding more than a 50-per-cent stake and having voting rights exceeding 50 per cent in companies whose operations are included in Annexes 1 and 2 of the Act are required to comply with the law within two years of it taking effect.

With the ceiling for foreign voting rights restricted to 50 per cent, foreign investors who hold excessive stakes in companies under Annexes 1 and 2 would be unable to simply convert their surplus shares to NVDRs.

If, for example, foreign investors own 60 per cent of a listed company and Thais the rest, the foreigners would be unable to comply with the amended Act simply by converting 10 per cent of their shareholding into NVDRs. To do this would still leave them in breach of the voting-rights requirement.

When a percentage of a company's shareholding is converted to NVDRs, the NVDRs, regardless of their number, retain a 1-per-cent voting right. The percentage by which remaining voting rights fall short of 100 per cent is then made up by allocating additional rights on a pro rata basis. In the example above, after converting 10 per cent of their shares to NVDRs, foreign shareholders would be left with 50 per cent and Thai shareholders 40 per cent. In terms of voting rights, these numbers would be made up to 99 per cent, giving the foreigners 55 per cent and the Thais 49 per cent, with 1 per cent remaining for the NVDRs.

However, NVDRs work for foreign investors who hold shares in companies operating under Annex 3 of the Act, because there is no limit to voting rights in Annex-3 firms, which include telecommunications companies.

Meanwhile, Asia Plus Securities has raised concerns about the draft amendments to the Foreign Business Act by posing the question of whether Thai investors have enough capital to buy shares sold by foreigners.

The securities house points out that despite the proposed provisions of the amended Act, it will remain difficult to prove whether a local investor has acted as a proxy for a foreign investors in casting their vote. 

Siriporn Chanjindamanee

The Nation